DOJ Blocks Chicago Tribune Buyout of O.C. Register

Just hours after Chicago’s Tribune Publishing won a bankruptcy auction to acquire the serially bankrupt Orange County Register, the U.S. Department of Justice filed a lawsuit to block the deal on antitrust grounds.

Instead, the newspaper will likely be sold to the second-highest bidder, Digital First Media, the Register reports. Attorneys for the Register‘s owner, Freedom Communications, asked the bankruptcy court on Saturday to accept that bid, which will formally be considered Monday.

After a two-day bankruptcy court auction, Tribune Publishing announced on March 17 that it submitted a $56 million cash to prevail over Digital First Media, publisher of the Los Angeles Daily News and Long Beach-Press-Telegram, and a management bid to buy Freedom Communications.

Tribune CEO Justin Dearborn trumpeted, “The successful bid for the business of Freedom Communications will allow the Orange County Register and the Press-Enterprise to continue providing a distinct local voice in their communities and deliver premium news and information to consumers across Southern California.”

By bracketing the Orange County Register with the Los Angeles Times to the north, and the San Diego Union-Tribune, which it also owns, to the south, Tribune Publishing was a natural buyer on a consolidating cost basis.

But shortly thereafter, the U.S. Justice Department Anti-Trust Division filed for a temporary restraining order with the court on the grounds that “if this acquisition is allowed to proceed, newspaper competition will be eliminated and readers and advertisers in Orange and Riverside counties will suffer.”

Government lawyers complain that the acquisition would give Tribune control of 98 percent of English-language local daily newspaper sales in Orange and Riverside Counties.

Despite widespread talk of a shift to digital, newspaper circulation revenues are actually up in the last five years, as publishers have chosen much higher prices, accepting some audience attrition. Profitability for circulation operations has also increased even more, thanks to less churn and a narrower delivery footprint, according to Alliance for Audited Media.

Although most newspaper readership continues to be in print, the number of people reading newspaper articles in a digital format has skyrocketed. This rapid shift of online followers from desktop to mobile is radically changing the newspaper business because the average mobile visitor only stays on a news site for about three minutes per visit.

By owning all the local alternatives, Tribune would have been able to better serve advertisers as mobile users surf from the Times to the Register to the Union Tribune.

The absolutely dumbfounded Tribune Publishing quickly recovered and then went on the offensive by lashing out at the Justice Department.

“The Division is living in a time capsule, with a framework that predates the arrival of iPhones, Google, Facebook, and modern media outlets that are killing the traditional newspaper industry,” Tribune’s director of Corporate Communications, Dana Meyer, said in a statement. “It wasn’t competition from the L.A. Times that forced the Register into bankruptcy. It was the Internet and related technology.”

The Justice Department had indicated earlier that it might have some concerns if Tribune Publishing won the auction for Freedom’s assets, but had no concerns if the competing bid from Digital First Media or the management group was successful.

Most legal observers thought that the Justice Department might require Tribune to make some minor concessions. No one Breitbart News has spoken with thought the government would actually try to quash a Tribune buyout.

Digital First Media (DFM) conglomerate, which controls 800 multi-platform newspaper and media information products, as runner up in the auction, may now be positioned to acquire Freedom at a significant discount.

The Justice Department’s action sets up what promises to be a fierce battle at a hearing scheduled for Monday, March 21 in Santa Ana, before U.S. Bankruptcy Court Judge Mark Wallace.